WACC Calculation

Question

Please use the following info to calculate the weight, which you'll need to calculate the WACC

To fund the purchase of the equipment along with few

other outlays of equal risk, Baba Rafi is thinking about raising $1.2 million

through the issuance of $550,000 worth of common stock, $200,000 preferred

stock and the rest with long-term bonds

Baba Rafi’s bonds will be sold 10-year bonds paying 5% coupon per year at the market price of

$1060 (firm’s tax rate is 40%). Per value would be $1000 for the bonds. Preferred stock paying a

$2 dividend can be sold for $30. Common stock for is currently selling for $50 per share. The

firm paid a $4 dividend last year and expects dividends to continue growing at a rate of 10% per

year. Flotation costs of issuing new common stock will be $6 per share. Calculate the WACC of

BR?

Answer 1

Hi, my computations yield 11.3%. New cost of stock = 20%

Preferred stock = 7%

AT Cost of debt = 2.55

Hope this helps!

bk